problems and prospects of the state shipping agency in tanzania
TRANSCRIPT
WORLD MARITIME UNIVERSITYMalmö, Sweden
PROBLEMS AND PROSPECTS OF THE STATESHIPPING AGENCY IN TANZANIA
JOHN K. MOSHIUnited Republic of Tanzania
A dissertation submitted to the World Maritime University in Partial fulfilmentof the requirements for the award of degree of
MASTERS OF SCIENCEin
Shipping Management2000
Copyright Moshi, J, K, 2000
ii
Declaration
I certify that all material in this dissertation that is not my own work has been
identified, and that no material included for which a degree has been previously been
conferred on me.
The contents of dissertation reflect my own personal views, and are not necessarily
endorsed by the University.
……………………………………… (Signature)
……………………………………. (Date)
Supervised by:
Name: Dr. Bernard Francou
Institution/ Organisation: Associate Professor, Port Management
World Maritime University,
Malmö, Sweden.
Assessed by:
Name: Patrick Donner
Associate Professor, Shipping Management
World Maritime University, Malmö, Sweden.
Co- assessed by:
Name: Carl Hillerström
Position: General Manager
Organisation / Institution: Hastings Agency AB
Malmö, Sweden.
iii
Acknowledgement
The author of this study fully admits that this work would not have been completed
without valuable contribution of many individuals and various Organisations.
Speaking the truth from the bottom of my heart, I am more than grateful to the IMO
Technical co- operation department for the scholarship awarded for my studies at the
World Maritime University
I am highly indebted to my supervisor Professor Bernard Francou for his intellectual
guidance towards the whole period of my writing, I treasure him so much!
To Professor Patrick Donner, who always opened the door for me at any time and
was ready to discuss and give advice towards my work, God give him long and
fruitful life!
To all the lecturers and staff at the World Maritime University, your contribution
towards my success is beyond human writing, I will always honour you. Cecilia
Denne, David Moulder, Susan Eklöv, Aså Persson, Capt. Horck, Shuo Ma, Peter
Wetterlund etc I thank you with tears!
To my beloved wife Salome, I appreciate very much for your endurance during my
long stay abroad, your letters, phone call, e- mails were such inspiration and
encouragement towards this work.
Lastly I am indebted to my begotten son Eli, I appreciate very much for his tolerance
for being lonely without his father for such long period of time, shall there be
success, I will never humiliate him!
I thank you all!
iv
Dedication
To my late parents who supported my previous education and yet they had no
opportunity of seen my success.
I will always honour them!
v
ABSTRACT
Title of the Dissertation: Problems and prospects of the
State Shipping Agency in Tanzania.
Degree: MSc
Like many other National Shipping Agencies in Africa, NASACO had a traditional
and conservative way of performing its activities and this was due to the fact the
company had been enjoying state monopoly.
Given the pressures from unsatisfied customers on one hand and external pressures
from various International Organisation like World Bank, WTO, EU, IMF etc
NASACO had neither option nor immune but to comply with the policy of
privatisation which is believed to work more efficiently thus forgetting about the
obsolete monopolistic enjoyment.
The problems analysed in this study are a clear indication to the eyes of professionals
that state dominance in the commercial activities is most likely to be inefficient and
bureaucratic.
As a solution to those problems the government has decided to privatise ship agency
activities, consequently to this decision NASACO has been greatly affected in terms
of revenue and employment. The author would like to put his position crystal clear
that he is not intending to criticise the concept of privatisation since he is of the
opinion that the policy is as good if carried out properly, and for the right reasons.
Indeed the author is convinced that private ship agencies may offer port users and
economy as a whole many benefits.
It is the interest of the study to analyse the future of the state shipping agency in an
ever growing technology, competition and the environmental changes than before.
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Basing on this the author gives various alternatives for the ship agencies and other
intermediaries including that of becoming NVOCC, warehousing, packaging and
other diversified value-added services.
Key words: monopoly, efficiency, e- commerce, mergers, Privatisation,
Diversification.
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Table of Content PageDeclaration iAcknowledgement iiAbstract iiiTable of ContentList of abbreviation iv1:0:0 Introduction 11:1:0 Definition of the problem 31:2:0 Objective and scope of the Study 31:3:0 Study Methodology 41:4:0 Limitation of the Study 42:0:0 The concept of the ship ping agent, intermediaries and its application 52:1:0 Definition 5 2:1:0:1 Liner Agent 6 2:1:0:2 Owner’s Broker 6 2:1:0:3 Chatterers Broker 6 2:1:0:4 Sale and Purchase Broker 7
2:1:0:5 Port Agent 72:2:0 The need for the Agent 82:3:0 Qualification for the Good Agent 92:4:0 General Duties of the Shipping Agent 12 2:4:1:0The duty for contracting signature 13 2:4:1:1 Accounting for Fund 13 2:4:1:2 Cargo canvassing 142:5:0 Liabilities and claims of the Ship Agent 14
2:5:1 Claims from negligence 142:5:2 liabilities resulting from booking cargo 142:5:3 Liasing with other Port 152:5:4 Liabilities resulting from releasing of import cargo 152:5:5 Liabilities resulting from unproper
care in issuing documents 162:5:6 Liability claim resulting from “fake crew” 16
2:6:0 Historical Development of the Shipping Agency in Tanzania 172:6:1 Macro- economics analysis of Nationalisation 172:6:2 Argument in favour & against of Nationalisation 182:6:3 Concluding Remark 193:0:0 Problems of the Shipping Agencies Prior to Privatisation 213:1:0 Background review 21
3:1:1 Political Problem 223:1:1:1Formulation of the Company 223:1:1:2 Missing sense of belongings 233:1:1:3Mixing Politics and Shipping Business 23
3:2:0 Institutional Problem 243:2:1:1Lack of accountability 24
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3:2:1:2Poor Marketing Efforts 243:2:1:3Wrong Perception 253:2:1:4Conflicts of interest among shipping lines 25
3:2:1:5 Staff recruitment 253:2:1:6Over increasing of administration cost 263:2:!:7 Lack of communication facilities 27
3:3:0 External Pressure 283:4:0 Infrastractural Problems 293:5:0 Concluding remark 29
Government Response to the Problems 304:0:0 Privatisation, Restructuring and Lincensing Strategy 304:1:1 Objectives of Privatisation 31
4:1:1:1 Promotion of Economic Efficiency 324:1:1:2Reduction of fiscal burden 334:1:1:3Balancing the role of the public and the private sector 344:1:1:4Attract foreign investment 344:1:1:5Spread and democratise share ownership 34
4:2:0 Some methods of achieving Privatisation 344:2:0:1Public Offer 344:2:0:2 Management /Employment buyout 354:2:0:3Private placement 354:2:0:4Sale of assets 354:2:0:5Joint Venture 35
4:3:0 The Road to Privatisation 354:3:0:1Communication and campaigning for Privatisation 364:3:0:2Legal Reforms 374:3:0:3Tendering procedures 39
4:4:0 Implementation of the Privatisation Policy 404:4:1 The challenges facing the Privatisation Policy in Tanzania 40
4:4:1:1Lack of Capital Market 414:4:1:2Uncertainty of the gains 414:4:1:3Resistance to change 42
4:5:0 Alternative Reforms Methods 434:5:0:1 Commercialisation 454:5:0:2 Corporatisation 454:5:0:3 Deregulation/Liberalisation 46
4:6:0 The Impact of the Reforms and the Critique of the ReformsCommission 46
4:6:1 Background information 464:6:2 Weaknesses of the Reforms Commission 474:6:3 The Weakness of the PSRC in divesting 484:7:0 Licensing of the Private Agent 494:8:0 Conclusion of the chapter 515:0:0 Global Challenges Facing the Shipping
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Agent and recommended steps forward 525:1:1 e- commerce 525:1:2 Decline in freight rate 545:1:3 Mergers and Acquisition, alliances 54
5:2:0 Alternative Strategies for the agents and intermediaries 555:2:1 Pondering about the future 555:2:2 Selected alternative for Prospects 565:2:3 Consolidation and shipment of cargo 585:2:4 Packaging 595:2:5 Warehousing 605:2:6 Reasons for warehousing 615:2:7 Location analysis 615:3:1 Strategies for the success 625:3:2 Marketing tools 635:3:3 Formation of the shipping & Brokers Association 635:3:4 ISO Certification 645:3:5 Training need 645:3:6 Conclusion of the chapter 666:0:0 CONCLUSION 668:0:0 Bibliography 68Appendices
Appendix 1 NVOCC 75Appendix 2 GENERAL AGENCY AGREEMENT 76
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LIST OF ABBREVIATIONS
BIMCO Baltic International for Maritime Council
CIF Cost Insurance Freight
EDI Electronic Data Interchange
EU European Union
FONASBA Federation of National Association of Ship and Brokerage
I/P Internet Protocol
IMO International Maritime Organisation
LCL Less Container than Loads
NASACO National Shipping Agencies Company Limited
NVOCC Non Vessel Operators Common Carrier
PE´s Public Enterprises
PSRC Parastatal Sector Reforms Commission
UNCTAD United Nation Conference on Trade and Development
WTO World Trade Organisation
1
CHAPTER 01
INTRODUCTION
The author is beginning by quoting biblical verses from the book of Saint Luke 1:1-
4, of which the verse contains the following words,
“In as much as many have taken hand to set in over a narrative of those
things which have been fulfilled among us. Just as those who from the
beginning were eyewitnesses and ministers of the word delivered them to
us. It seemed good to me also, having had perfect understanding of all
things from the very first, to write to you an orderly account, most
excellent…”
The author is fully aware that many scholars have put their hands and write about
ship agencies and other intermediaries, however, things are changing with time, and
knowledge is changing in every sunrise and sunset. This study is aimed at analysing
the role of the shipping agency and its significant changes and the future role of these
intermediaries
Up to the year 1998, Shipping Agencies in Tanzania was controlled by the State,
giving large room for problems relating to state ownership.
2
Some of the problems that have been experienced were lack accountability, lack of
sense of belongings, lack of essential facilities leading to low attention to the
customers, political interference and sheltering of employment. Such problems
create barrier to transportation chains leading to higher cost of goods to the final
consumer.
In the year 1998, the government decided to introduce reforms aiming at introducing
free market economy, thus allowing private sector to participate in the shipping
agencies. Other purposes for this move was to promote country’s economic growth
by facilitating trade it was also one of the method employed by the government in
accepting the global economic changes and information technology.
With the introduction of these reforms National Shipping Agencies Co. has been
greatly affected making the future uncertain!
Basing on this result, the paper is aimed at analysing the impact of these policies and
the future of the shipping agencies and other intermediaries. The future analysis will
be based on truth of the changes in technologies especially internet i.e. e- commerce,
mergers and acquisitions, alliances and the global decline of the freight rate.
The impact of these changes affects the chains in global liner shipping. With the
introduction of electronics commerce the image of the shipping industry and
particularly the intermediaries has assumed new roles.
Basing on this fact then, it has become truism that e- commerce has changed the
manner in which goods and services are being bought and sold, and secondly the way
in which the process of sourcing, transforming and distribution of goods to ultimate
consumer is being managed.
3
It is from this logic of changes, that the paper is aimed at analysing the likelihood
future of the shipping agencies in particular NASACO.
1:1:0 Definition of the Problem
Tanzania National Shipping Agencies (NASACO) like many other State Owned
Enterprises in third world has been greatly challenged for its existence due to poor
performance of its role that led to much havoc and dissatisfactions of his customers.
Shipping is an international business meaning that it requires fast and efficient
logistic chain from the shipowner, cargo owner, port authority, agent, shipper and the
final consumer.
Due to the problems of the ship agents in Tanzania, the government decided to
transform these activities by allowing private sector to participate in the industry.
Implementation of those policies had its consequences, thus the paper aim at
analysing some of the problems in implementation of those policies.
Another problem that relates to these policies is the possible future role of NASACO,
care has been taken in analysing these aspect taking into the account of the growing
changes in Information and Technology.
1:2:0 Objectives and scope of the study
The study is aimed at focussing on the:
• To examine the traditional role of the shipping agency in maritime industry.
• To assess some of the problems of the shipping agencies working under the state
ownership.
• To assess some strategic solution introduced by the government of Tanzania as a
solution to those problems.
• To assess the impact of those solution
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• To assess the future of the shipping agents and other ship brokers basing on the
growing technological changes.
• To make recommendations regarding structural reforms which has been
introduced in the shipping Agencies.
• To make constructive proposal and recommendation regarding the future role of
the ship agent.
1:3:0 Study Methodology
The study involves various book research published, unpublished, and electronic
searching relating to the shipping agencies. The research covers the financial
analysis of NASACO basing on the previous years prior to privatisation. The
purpose was to have justification for the government intervention.
Contact with NASACO, Ministry of Finance, Tanzania Harbours Authorities, Freight
Forwarders, Parastatal Sector Reforms Commission, and Tanzania Shippers Council,
Tanzania Central Freight Bureau just to mention few has been made. Personal
contact with WMU Lectures has been conducted too.
1:4:0 Limitation of the Study
The study has been conducted just after a structural reform has been introduced in
the company, as such, the author has the feeling that it is too early to have enough
information on the general success of the private sectors in the shipping agency.
More indeed there has been a general tendency of the Private enterprises to avoid
disclosing information to the researchers and public at large, thus creating a sort of
the barrier to the study.
Looking from NASACO point of view, there could be no much information
available, the last information was those mostly published in 1997 just before
privatisation of the Company. Given the desperate mood of the remained employees
there has been little co-operation with them.
5
CHAPTER TWO
2:0:0 The Concept of the Shipping Agent, Intermediaries and its application
2:1:0 Definition
A Shipping Agency can be described as the business of one company rendering
delivering shipping services on behalf of the shipowner with the right and obligations
for both parties specified and signed by the involved parties in the so called agency
agreement. Sell defines ship agent in a legal perspectives, “as a legal relationship
that exist between two parties that enter into agreement, whereby one of the parties,
called the Agent agrees to represent or act for the other called the principal, subject
to the principal’s right to control the agent’s conduct concerning the matters
entrusted to him.”
However with the changes in the shipping industries, it becomes difficult to give a
precise definition of the shipping agency.
The type and the function of the shipping agency are highly influenced by the nature
of the shipping company or the activities of the ship owner.
In the shipping industries today, various agents can be identified this includes liner
agent, Port Agents, Ship brokers, Charterers´ broker, Forwarding Agents sometimes
called clearing and forwarding agents, Sale and Purchase Brokers, Owner’s Brokers,
Chatterers Broker just to mention few. For the purpose of bringing sense, it is
prudent to clarify some of them.
6
2:1:1 Liner Agent
Sometimes he is called loading broker, This is the special company serving the
interest of the shipowner´s company who operates under liner arrangements. Some
of the key features of the liner business include,
• Fixed schedule i.e. time and place of sailing and the destination.
• Serving one or more established trade routes and can be in various geographical
areas.
• Advertised and repetitive and departure dates.
• It carries high value cargo compared to tramp shipping that normally carries bulk
homogeneous commodities.
• Uses of tariff in quoting freight rates based on commodity value and destination
within the liner services.
• Terms of carriage are guided by contract called Standard Bill of Lading, issued
by the Liner Company.
So liner agent has to carry business with the above features. He survive on agency
fees, commission on cargo booking, bill of lading fees, commission on container
trucking & tracing etc.
2:1:2 Owner’s Broker is a person appointed by the ship owner’s for the purpose of
finding cargo for the ship to the highest or best freight rate. The main task of the
owner’s broker is to focus on the ship’s tonnage and balance this supply with
demand of the existing tonnage i.e. depending on the market situation.
2:1:3 Charterer´s Broker can be explained as the person appointed by the charterer
to find a reasonable and qualified ship tonnage at he minimum freight cost.
After he has fixed a deal he is entitled for the commission as agreed with the
principal.
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2:1:4 Sale and Purchase Broker
These are Brokers specialising in the technical aspects of the ships including the
construction and machinery, they also have knowledge on classification of a ship,
loadlines, safety regulations, maritime law, shipping economics, (market economics),
they are also equipped with the knowledge of international trade, i.e. market
volatility of demand and supply of tonnage. Having such knowledge they are able to
reap higher profit. Many ship practitioners view this industry as the most lucrative.
When this kind of broker act on behalf the seller he always aim at obtaining the
highest possible price and when acts as an agent for the buyer he will aim at
obtaining the lowest price to purchase a ship, it should be noted that the sale and
purchase of the ship is largely influenced by the supply and demand of the freight
market. Meaning that, when the rates are low many ships will be on sale and when
freight rates are high fewer ships will be on sale.
Successful broker will be judged and measured by his ability to understand the whole
ideas of the freight market.
The author further admits that ship brokerage are not well developed in Tanzania for
many reasons but major one can be said due to low purchasing power attributed by
low economic development and other associated scenarios.
2:1:5 Port Agent, this is an agent in a specified port, serving the interest of his
principals in this case the shipowner. He represents the shipowner in that particular
port and act on his behalf. His main task is to facilitate prompt berthing of the ship,
cargo handling customs, documentation, pilotage, security, tug arrangement, advance
cash to the master, paying port dues, ensuring prompt turn around of the ship etc.
However in many port of the world the functions of the port agency are carried out
by the liner agents
8
The UNCTAD Minimum Standards defines the term Shipping Agency in the
following manner as,
- any person (natural or legal)engaged on behalf of the owner, charter or operator
of a ship or of the owner of the cargo in providing services including:
a) Negotiating and accomplishing the sale or purchase of a ship.
b) Negotiating and supervising the charter of a ship
c) Collections of freight and / or charter hire where appropriate and all related
financial matters.
d) Arrangement for customs and cargo documentation and forwarding of cargo.
e) Arrangement for procuring, processing the documentation and performing all
activities required and related to dispatch of cargo.
f) Organising arrival or departure arrangements for the ship.
g) Arranging for the supply of services to a ship while in port.
2:2: 0 The need for the ship agent
The need and significance of the ship agent can be easily understood when someone
looks at the functions and the liabilities entrusted to him by the shipowner.
The shipowner need a representative who will take care of his ship in the foreign port
with good knowledge of the local situation, such as marketing and port conditions
and capable of handling all the necessary work for the shipowner.
However with the introduction of the container transport and computerisation in
1960´s has greatly affect the coefficient degree of the need and the size of the ship
agent in our modern times.
Mergers and acquisition of the shipping lines like Maesrk acquiring Sealand, P & O
merges with Neddloyds etc all these has a great impact on the ship agent in terms of
sizes and revenue. More details on the impact of the mergers and acquisition have
been discussed in the fifth chapter.
9
In those long past days, the business of shipping agency was extremely profitable
resulting from the high level of freight then prevailing. Implying that both the
principal and the agent made good amount of money.
However, since the ship agent most important resources are training, experience,
marketing knowledge, etc. That still applies today in a world of increasing
globalisation and modern means of communication. The ability to call up data on a
screen does not completely eliminate or totally replace the commercial initiative and
creativity that the ship agent offers to the shipowner. Basing on this, the author is
convinced that the ship agent will continue to be an indispensable link in the
maritime chain.
2:3:0 Qualification for the good Ship Agent
Many countries in the world do not impose professional qualification for ship agents.
Generally speaking there are no mandatory qualification requirements so speaking,
indeed many agents do not even know the existence of the UNCTAD code of
conduct for the ship agent. It has been confirmed that many ship agents operate
without having to be member of any association or having to comply with any sort of
standards.
Like in Tanzania, there is no specific requirement one has to posses for becoming a
ship agent but what is important he has to be registered with the Customs Authority
together with the Ministry of Trade and Transport.
The purpose for this registration is mainly for tax collection and distance monitoring.
However, apart from lack of uniformity in qualifications, there are some implied
requirements to be attained by ship agent. These requirements include;
� Sounding financial base.
� Sounding professional shipping matters,
10
� Technical knowledge
� Reliable office
� Marketing knowledge and
� Knowledge of the Local procedures.
Having examined the existing standards, which lacks uniformity. UNCTAD decided
to prepare a set of draft minimum standards as a non- mandatory model to be applied
to the ship agency business. The UNCTAD minimum standards has been prepared
in close consultation with organisation involved in ship agency matters, including
BIMCO, the Baltic Exchange, FONASBA, the ICS and Multiport. They are
intended to serve as a guideline to help national authorities and professional
associations their own standards.
It should be carefully noted that, these are not comprehensive set of rules covering all
aspects of ship agency. They are aimed at upgrading business standards of
intermediaries, and focus on three main areas professional qualifications, financial
qualification and professional conduct. Their objectives are to:
a) Uphold high standard of business ethics and professional conduct
b) Promote a high level of professional education and experience
c) Encourage operation of financially sound and stable shipping agents
d) Continue combating maritime fraud by ensuring improved services by better
qualified shipping agents and
e) Provide guidelines for national authorities and professional associations to
establish and maintain a sound ship agency system.
The requirements are of general nature and are suitable for minimum standards
application to all types of intermediaries and agents. They can be adopted to suit the
requirements of intermediaries, whether acting for the ship or the cargo. And they
lay down a relatively high level of professional expertise and competence.
11
The requirements are based on those standards already imposed by various
professionals, associations and government regulations in certain countries. They
include having practical experience in the relevant field of activity, being of good
standing and reputation, and passing appropriate professional examinations.
Article 3(1) of the minimum standards stipulates that, in order to be professionally
qualified, the shipping agent must:
a) Have obtained the necessary experience in the profession by working for at least
three years in a responsible capacity with a qualified shipping agent;
b) Be of good standing and be able to demonstrates his good reputation and
competence, by positive vetting and signified approval of at least two agents of
good repute who are in his business and his geographical area of activity: and
c) Have passed such professional examination(s) as required by relevant national
authorities / professional associations.
The scope and details of such examinations shall be determined by the said
authorities/ professional associations.
The financial qualifications required by the minimum standards are aiming at
preventing the operation of financially unstable individuals or entities, by requesting
shipping agencies to have adequate financial resources and to be adequately insured
against professional liabilities. It is also required that measures be taken to ensure
that these standards are met on continuous basis, through annual scrutiny by national
authorities or professional association.
The minimum standards promote a high level of business ethics and professional
conducts. Article 5 requires the agent to:
a) Discharge his duties to his principals with honesty and integrity
b) Apply a standard of competence in order to perform in conscientious, diligent
and efficient manner.
12
c) Observe all national laws and other regulations relevant to the duties he
undertakes;
d) Exercise due diligence to guard against fraudulent practices and
e) Exercise due care when handling money on behalf of the principal
Enforcement of the standards is left to the national authorities and professionals
association. Disciplinary measures may be applied for failure to comply, but
existing agents who fail to meet standards set by the rules are to be given reasonable
time to conform with the requirements.
2:4:0 General duties and responsibilities of the ship agent
The duties of the shipping agent to his principals are covered under the contract
called the Agency Agreement. The contact can be in a formal document or can be
implied as a matter of common law or by customs, or by statute. However, in
general the agent undertakes the following duties.
The agent is required to exercise skill and knowledge to the best of his ability for the
benefit of the principal, he is supposed to perform duties to the satisfaction of the
principal. Again he the agent should avoid errors, omissions negligence and other
risks or some mistakes that may consequently cause loss to the principal. The agent
should avoid any act that may low down the reputation of his principal, he should
always try to defend and protect his principal’s interest
The Agent has a duty to keep his principal informed of any development e.g. when
securing cargo, any market possibilities, changes in the port both infrastructure and
superstructure, changes in port restrictions, any changes with regards to port tariffs,
so when the agent fails to inform his principal of such development then the duty to
keep the principal informed has been breached. In some occasion breach of this duty
may warranty the principal to terminate agency contract and may lead for him to
appoint someone else who is more capable.
13
In tanker market, competition is very fierce hence principals are heavily relying on
the agent. While at the agent port the vessel may be fixed for the next employment
to load and the lay day’s date are based on the latest information received from the
agent. If the agent fails to keep the shipowner closed advised of possible delays, the
shipowner may loose the next cargo and revenues. The same can occur if cargo
discharge or loading order is issued locally to the agent and the agent fails to advise
the principals of changes in quantity and or quality of cargo.
2:4:1:0 The duty for contracting signature
Care should be taken when the agent is signing contract or any other document on
behalf of the principal. The very commonly document signed by the agent is the
Bills of Lading, the Agent is keenly required to understand the meaning and
implication of what he is signing, cost, risk and impact to be involved thereafter. It is
on this ground that the ship agent is required to have knowledge in commercial law
or maritime law which covers some backgrounds of INCOTERMS e.g. FAS i.e.
Free Along Side Ship, (named port of shipment) FOB, (Free On Board, named port
of shipment) CIF- (Cost Insurance and Freight, named port of destination)
When issuing Bill of lading he should be able to differentiate the meaning of
stamped phrases like, Received for shipment Bill of Lading or Cargo loaded on
Board Bill of Lading.
When signing the relevant document, the Agent should sign as agent for a named
principal, in this manner the agent ensuring that he is contracting on behalf of the
principal.
2:4:1:1 Accounting for the fund
The Agent has the duty to account for the fund advanced by the principal. When
vessel calls at the agent’s port, normally he request estimated port charges to be
advanced to him prior to the arrival of the ship. Thus, the use of the principal’s fund
should be reported immediately after the vessel has sailed.
14
If the agent fails in this regard, he may be considered as trustworthy, creating the
impression of lasting ship agent.
2:4:1:2 Cargo canvassing
The agent also has the duty of marketing and sells principal’s service, monitoring of
cargo entering or leaving the territory weather direct or transhipment.
2:5:0 Liabilities and claims of the ship agent
The liabilities and claim of the shipping agents are mainly resulting from his main
duties. The author shall only discuss fewer liabilities and claims basing from his
book research and experience. Most of the liabilities discussed hereunder are those
caused by agent own fault (negligence)
2:5:1 Claim from negligence
If the agent fails to arrange for the ship to berth, or for the stevedore to attend loading
or discharge the ship, he has failed to perform his duties and would become liable for
any losses suffered by his principal or by his customers.
Consider a case when an agent receives fax or telex message from a charterer asking
if a particular ship was suitable for that port. Having received this message the agent
just checked port draft restrictions and replied that the ship was suitable, and the ship
was fixed for that port.
Unfortunately he had overlooked the fact that the ship was too long, and that the
vessel could not berth accordingly. So when the ship was streaming to the said port
then the error was realised. In this particular situation the cargo had to be diverted to
the nearest port, unloaded and then shipped in a shorter ship to the previous port. So
the agent in this particular case is fully liable for the extra cost involved due to his
negligence, he would have to reimburse the substantial costs incurred by his
principal.
15
2:5:2 Liabilities resulting from booking cargoes, quoting rates
One of the most important tasks of the agent is to find and book cargo for his
principal’s ship. The agent in this respect he must be careful to book the cargo and
quote the rate under the terms and conditions of the principal concert.
Some forwarding companies do attempt to their owns terms on the ocean carriers,
sometimes under the guise of the quality assurance requirement. In this respect the
agent should take care not to accept booking on terms that his principal has not been
specifically agreed upon. If the agent is not careful then he might find himself liable
and paying substantial amount of money so as to cover the loss incurred.
2:5:3 Liasing with other parties
The agent should liasing between the cargo interest, the ship service provider etc. a
failure by the agent to pass on an instruction correctly may lead to a consequential
losses. For example, when dealing with refrigerated or cargo which need fumigation
care should be taken accordingly.
To be on safe side the agent need to put necessary instructions in writing to the
relevant authorities.
2:5:4 Liabilities resulting from releasing of import cargo
One of the greatest moment of which the agent exposes himself to a higher liability
claim, is when he releases cargo to a consignee or receiver, when a container has to
be delivered directly over the ship’s rail into consignee’s possession, the agent needs
to be careful. The agent has to ensure that original bill of lading or the approved
original bank indemnity, which has been approved by his principal, is in the hands of
the agents before the cargo is being released to the consignee. When agent releases
cargo without original bill of lading or approved instructions from the principal in
16
this regard the agent is said to commit professional negligence, and that the agent
will be liable for wrongful delivery or any other losses resulted thereof.
2:5:5 Liabilities resulting from unproper care in issuing documents
Transposition of container numbers may subsequently lead to a wrong destination of
those container(s), and thus the agent will be liable for paying reposition cost of
those container(s) indeed if cargo lost or damaged (or even confiscated by customs)
the agent may be fully liable for the value of goods in question.
Issuing of incorrect address may cost the agent dearly, consider cargo bound for San
Diego has been sent to Santiago, iron ore for Coaching went to Kaohsin, refrigerated
cargo for Birmingham Alabama has been mistakenly shipped for Birmingham
England.
Extra care needs to be maintained when preparing cargo manifest, bills of lading and
other related documents. Negligence and other minor errors like those mentioned
above may cost the agent huge sum of money.
2:5:6 Liability claims resulting from “ fake crew “
It has been learnt that some organisation pretends to be principals or shipowners with
malicious motives. BIMCO (1999), that illegal immigrants posing as ship’s crew
have increasingly using unwitting ship agents to gain entry into a number of
countries.
One of the incidents reported by BIMCO was that, an agent was notified by an owner
– Sealink Shipping – that the vessel, the Suwa, would be arriving shortly in Israel.
The unsuspecting agent, who accepted the nomination, notified the relevant
authorities and arranged hotel accommodations for the incoming of 12 crew, all of
them believed to be Indian nationals. Shortly after the new crew arrived in Israel and
checked into their hotel, the agent received a call from the “master” of the vessel
claiming a delay owing to engine failure. The following morning the Hotel advised
that all 12 crew members had left the hotel without notice, leaving the agent
17
responsible for an unpaid amount of $ 2000. All the subsequent effort to contact the
shipowner or the vessel itself proved to be unsuccessful.
In such incidence like this, the agent is rendered liable for all costs incurred by the
crew, and for any fines or any sanctions that may be levied by local immigration
authorities for failure to exercise due diligence.
The business of agency is especially susceptible because it relies to an extent on
trust. The only way to check the validity of a company is to investigate it fully
before to agreeing to represent it, something which is not always possible given the
level of competition on agency business. It is advised that agents should use the
BIMCO Service Division to check new or unknown principal.
Agents are also advised to be vigilant when it comes to the activities of
unscrupulous!
2:6:0 Historical Development of the shipping Agency in Tanzania
Tanzania gained her political independence. During colonial rule shipping activities
and other economic matters in Tanzania was mostly carried under private basis.
However it was in 1967 when Tanzania decided to nationalise all major means of
production under the so-called Arusha Declaration. In this regard all commercial
activities was put under the State Trading Corporation (STC) and consequently
NASACO was nominated to monopolise all shipping agencies effectively from 27th
January 1973.
2:6:1 Macro economic analysis of Nationalisation policy
The author explains the purpose of nationalisation by quoting from Beardshaw
pg156,
“ To secure for workers by hand or by brain the full fruits of their
industry and the most equitable distribution thereof that may be
possible, upon the basis of common ownership of the means of
18
production, distribution and exchange and the best obtainable system
of popular administration and control of each industry or service.”
Clause IV of the constitution of the UK, Labour
party 1918.
The quote sounds so sweet, but has proved to be so difficult to achieve, it is purely
manifestation of socialist philosophy of ruling the world economy with honey
promises
The definition of “nationalisation” is a complicated one and indeed not easy to
ascertain what it actually constitutes. However, the author defines nationalisation as
the desire of the state to handle all major means of production into the hands of the
public for the purpose of creating equitable distribution of income. This definition
should not be considered as standard, simply because it is purely author´s ideas as he
stands to be challenged and criticised.
So, shipping agencies and other commercial activities was nationalised in order to
fulfil the concrete steps towards socialism, which never reached.
In view of this scenario, the public enterprises operated under centrally planned
market environment. The overall policy direction was from the government.
Consequently many public companies could not manage to survive on they own but
rather depending on the government subsidies. Fewer companies could produce
services and goods to the level of break even point, making TR=TC
(TR= Total Revenue, TC = Total Cost)
This occurs where the AverageC curve cuts the Average Revenue curve at the
Equilibrium point
“This overall equality of total revenue and total cost allowed for a large disparity
between the cost of supplying any one individual and the price charged to that
individual “ Bearshaw, 1988, p. 276.
The economic history of Tanzania witnessed the collapse of many public enterprises
basing on the above mentioned reasons.
19
2:6:2 Some argument in favour and against Nationalisation
There are two major reasons for the Tanzania government to opt for nationalisation,
a) Control of the economy- the government wanted to pursue its economic policies
on investment, employment, and prices through, the operation of the industries
concerned.
b) Socialism – a major reason for nationalisation is also considering political views
of the ruling party by then TANU currently, CCM. This is based on the belief
that public ownership of the means of production is the best way of living.
Some argument against nationalisation
Many nationalised industries are monopolies and it could be argued that state
monopoly is more disadvantageous to the consumer then private one. This is
because there is no higher authority to protect the consumer’s interests The consumer
has to tolerate lack of choice and high prices associated with monopoly.
Bureaucracy is another setback against nationalisation, since it creates over- large
and over bureaucratic organisation, which suffers from diseconomies of scale.
It is also argued that the sound administration of nationalised industries is often
undermined by politicians for short-term political gains.
2:7:0 Concluding remarks
In this chapter the author has explained in details the concept and definition of the
ship agents and some of ship intermediaries and their general application in maritime
community. Modern shipping business is becoming more litigious than before so
the ship agent has to perform his obligations with optimal diligence, the purpose
being avoidance of claims.
For the case of Tanzania prior to de - regulation, State agent had nothing to worry
about because all matters were under the state control. In view of this, nor claims
20
were being paid neither did the company had the insurance policy for covering his
liabilities and even to his properties.
The NASACO head office was inferno and the whole 8-story building were
completely destroyed by fire, nothing could be rescued at that time. However, due to
the fact that the building and other properties were not insured the Company could
not obtain compensation thus total loss!
Given this experience, it is advised that the ship agent should cover himself by
buying sufficient and adequate insurance.
21
CHAPTER 03
PROBLEMS OF THE NATIONAL SHIPPING AGENCIES IN TANZANIA
PRIOR TO PRIVATISATION
3:0:0 Background review
NASACO as a State owned shipping agency basically could have faced with only
two major problems, first problems related to Liner business which can be said as
more work load for lower reward; lower levels of cash flow; less control over his or
her own future and greater investment in technology. At the same time the Liner
Principal expect the Agent to work in partnership bringing the sense of change of
corporate culture and greater degree of mutual understanding.
For non-liner, the agent faces the problem of identifying where control really lies i.e.
the cargo owner or the shipowner; the information required focuses on the cargo, as
well as the vessel. In such business there is conflicts between the owner, who pays
the fees and the chatterer who nominates him, demands from owner for discounts
and chatterer for rebates and for need for wider marketing and intelligence work.
Thus these are general problems which might face the Liner Agent and non-liner
agent in his day to day operations. However the situation is more detailed for a state
owned ship agent
22
The problems of the shipping agency in Tanzania could be divided into three major
group that includes political, state control or interference and technical problems.
All these together could be said to be the most significant problems affected the
shipping agencies in Tanzania. However the author has included other problems
which had indirect effect to the shipping agency. Such problems can be said as the
poor transport net work in Tanzania, high tariff rate etc
3:1:1 Political Problems
These are the problems, which affected the company due to political influences, and
others are due to Company formulation, some of them are as follows;
3:1:1:1 Formulation of the Company
It will be recalled that soon after Tanzania gaining political independence opted for
ideas of socialism the purpose was to archive fast economic growth through public
ownership of the means of production and limiting the size of private sector.
Tanzania was one of those countries and NASACO was born in those premises. By
the virtue of law, NASACO was empowered to monopolise all shipping agencies
business. Adam Smith explains in his book The Wealth of the Nation the unique
behaviour of monopolists also as cited by Samuelson, p 154,
“The Monopolists by keeping the market constantly understocked, sell their
commodities much above the natural price, and raise their emoluments,
whether they consist in wages or profit”
Briefly what Adam Smith is saying here is that Monopolists have unique feature of
raising the prices of goods or services for the purpose of enrichment. So, NASACO
as a single provider of the agency services had a problem of higher commission rates
and higher agency fees while service provided where critically low and of poor
standard.
23
Another problem with such political formulated organisation includes the possibility
of existing mismanagement of finances leading to self enrichment, since officials
exercise substantial amount of power so under such environment it is easy to bend
rules in favour of certain groups or individuals.
3:1:1:2 Missing sense of belongings
Missing of sense of belongings among employees was another serious problem faced
the agency in Tanzania; one of the reason for the creation of NASACO was to create
employment for his Nationals of which the goal was extended extensively leading to
low productivity.
3:1:1:3 Mixing politics and Shipping business
Shipping industry is competitive businesses it mostly requires freedom of decision
and sometimes ad hoc solution and responsibilities. Thus combining management
team with politicians and workers may distort decisions. This is because history has
proved that politics affects economic business. But to some academicians, there is
nothing wrong for management team that comprise of managers, politicians and
workers in fact this can be assumed as a participate management concept in large
spectrum.
Chief Executive Officer of the Company is a political appointee of the ruling party in
which case he has to dance whatever the party is singing. It is prudent to agree that
for any business to prosper needs to be free in her decision without political yoke or
intervention and unnecessary bureaucratic constraints it must have the authority and
implement them and take fully responsibility for success or failure as the case may
be. On the other hand such combination can be viewed as the complication of the
decision making processes where collective responsibility means safety against
individual accountability thus leading to inefficiency, high operation costs and low
productivity.
24
3:2:0 Institutional Problem
These are problems relating to management as a whole, some of these could be
sighted as follows;
3:2:1:1 Lack of accountability
NASACO being the Public Enterprise severely lacked accountability. The concept
gives the idea of reporting and feedback system. Those who acts on behalf of the
other persons or group should report back to the group or person this is one of the
basic principle of quality management in an organisation. NASACO as a public
enterprise lacked this important component. At the other end of the business i.e. in a
Private Sector accountability is very obvious.
For directing and supervising production. Finally, the owners are accountable to the
customers, and collect profit the excess of revenue over cost in exchange for
organising and monitoring the whole process. From the customer point of view a
classic profit seeking agency relationship prevails, but with layers of more complex
contracts within it. The Chief Executive officer and other managers are accountable
to the Board; the Board is accountable to the Shareholders. Thus there is a clear line
of accountability from management to the Board and finally to the Shareholders. So
NASACO as a Public Enterprise had little to do with this concept of accountability.
3:2:1:2 Poor marketing efforts
One of the important duties of the shipping agent is to conduct cargo canvassing or
cargo promotion. Due to the fact that NASACO was the sole Shipping Agency by
that time, little attention was being paid in this due regard. It was obvious that the
Agent was not fulfilling one of his obligations of which he was duty bound. To the
shipowners it was disappointing since the agent was paid reasonable remuneration
and other fees. Some of the vessels used to sail with ballast water simply because the
Agent could not secure cargo for the vessels.
25
3:2:1:3 Wrong perception
The Company had no clear mission statement, it had wrong perception that ”
Customers will always buy the company service wether they are satisfied or not.
This was absolutely wrong in its totality especially in the competitive market.
3:2:1:4 Conflicts of interest among shipping lines
Putting all shipping lines together under one roof was not proper since there is strong
conflicts of interests among shipping lines such combinations were P&O Nedlloyd,
Msc, PIL, MOL, Hyundai, GSL etc such environment apart from creating conflicts it
also invites corruption among the shipping lines for cargo lobbying against each
other.
3:2:1:5 Staff Recruitment
The personnel recruitment’s policy did not comply on required personnel attitudes
and qualities desired for competitive global shipping business. Such recruitment
policy was based on the fact that employment was for life.
Boarding officers who had direct contact with the master and the crew onboard
needed to have academic and professional qualities as a tool of giving good
company’s external image. Suprisingly in most cases NASACO selected unqualified
personnel who frustrated the ship officers thus toning the image of the Shipping
Agency
26
3:2:1:6 Over increasing of Administration cost
The table below shows the operating income and administrative expenses over the
described period and total expenditure in percentage.
Year Operating Income Admin. Expenses Total
Expend.. in
%
1991 1748 849 48.6
1992 1982 1209 61.0
1993 2818 2125 75.4
1994 3348 2912 87.0
1995 3476 3042 88.0
1996 3325 4141 125**
Source: NASACO Annual report and Accounts 1994/95 & 1996/97(Mill TZS)
The latest information as from 1998 and 1999 was not ready during the period when
this research was being conducted, however those figures above shows the general
trend of the Organisation had financial difficulties. In the year 1996 and the year
1997 the Company spent more than his income this was possible due to the fact that
management decided to borrow some of the money which belonged to the principals
and invested in the real estates .The result of this heavy investment lead some of the
claimant like the Harbours Authority and principals to pressurise for their claims. At
some instances some vessels had to be seized or detained for the alleged maritime
27
claim of which the principal had already remitted fund to the Agent who had not paid
but investing in estate instead. Such scenario and others frustrated the shipowners
and other parties who could use the agency services.
3:2:1:7 Lack of communication facilities
We all agree that shipping is International business of which the players need to
contact each other by various facilities due to vast distance exist among those
participants. Ship owner may be far away say in Western Europe but his ship may be
sailing in the waters of East Africa. In this regard, the owner would be anxious to
know the prevailing situation of his ship, crew on board, and the carried cargo. So he
will spend most of his time making phone calls, telex and other sophisticated means
of communication just to inquire for the actual position of his ship.
It is important then for the agent to have reliable communication facilities since he
can communicate with the owner and give him all the required information, it is also
true to say that any ship before calling to any port the principal will require some
information from the agent such as port condition, port expenses, and other related
information. So, communication facilities are very important for any ship agent who
aspires to be successful.
NASACO, as State Enterprise dealing purely with Shipping Agencies to a great
extent ignored the significance of this variable. The Company exercised very low
investment on this important aspect, very limited number of telephone, and telex
were installed, and when installed the bills were not paid on time hence
Communication companies had to disconnect the cables more often. Consequently
to this, shipowners who intended to call at the Tanzania port find themselves in a
difficult situation since they were unable to provide relevant information like
expected time of arrival (ETA), Ship particulars, cargo particulars, etc, it was even
difficult for principals to remit necessary funds for port charges i.e. Disbursement
account.
28
Such situation frustrated principals and associated customers e.g. shippers, importers
who are heavily relying on shipping agent for their day to day transactions.
For the Chatterers they had to loose more since in some occasion they had to stay
outer anchorage leading for payments of demurrage. According to Peter Bradie, he
defines demurrage as ,
” amount of money paid to shipowners by the chatterers, shippers or receivers as the
case may be for failing to complete loading or discharging of cargo within the time
allowed in the charter party. The rate of demurrage normally an amount per day, is
agreed in the charter party ” Sandevarn p.58 explain that,
“ If the Charterer fails to load and /or discharge the
vessels within the laytime specified he has to pay
compensation for the surplus time used (demurrage)”
So in this regard the sea users who depended on agents find themselves hanged by
paying dearly!
Poor communication and weak transportation facilities contributed to slow
documentation of necessary papers such as ship clearance, despatch of cargo
manifest, shipping order just to mention few.
Such scenario prompted port users to complain bitterly to the ministry of Trade and
Industries who is the overall incharge of the commercial activities in Tanzania.
3:3:0 External Pressure
With the increased Internationalisation of all forms of economic activities, which
demanded strong competitiveness, and adjustment of business behaviour thus
NASACO could not survive the pressure and changes, which were happening
outside, the World Bank and International Monetary Fund several times have been
advising the Government to restructure her economies among other things was to
reduce the size of the Public sector and introduction of free market economy as a
strategy for economic growth.
29
3:4:0 Infrastractural Problems
• Inefficiencies of both railway network and road transportation made many
shippers and importers especially transit to opt for the other ports the
consequences as explained above.
• High port tariff compared to other neighbouring countries the same effects as
above.
• Lack of dry docking facility in port made vessels to call to other neighbouring
ports such as Mombasa and Durban, this deny some income to NASACO esp.
commission and agency fees.
3:5:0 Concluding remarks
In this chapter the author has tried to explain some of the problems, which has been
facing the shipping agencies in Tanzania for more than thirty years. Those problems
could be divided into political, institutional, technical and indirect problems that had
significant influence to the Company’s performance.
Given the above sighted problems it is obviously that NASACO performed poorly
because of the monopolistic tendencies and misuse of the public resources, adding all
these two and others could not let NASACO resist the wind of the global changes
which calls for structural reforms of commercial activities.
30
CHAPTER 04
GOVERNMENT RESPONSE TO THE AGENCIES PROBLEM
4:0:0:0 Privatisation, Restructuring and Licensing Strategies and its impacts
There are different forms of privatisation which exist in the world today and the
choice of one or another can have a critical effects on the success or failure of the
whole entire programme.
Before proceeding in the details the author of this work deem it fit to describe the
concept of privatisation as it is popular used, the term privatisation denotes, “ a
radical change and a complex exercise in structural adjustment programme. It is
basically
“ the transfer of the ownership from the public to the private
sector.” (UNCTAD 1995, p. 63)
The definition of privatisation may vary greatly depending on different environment
and the user himself, however it basically constitute three key wording thus, transfer
of ownership rights, operating right and development rights. Depending on the form
of privatisation chosen, the private sector may acquire any one of these rights or
combination of them.
It should be put clear that transfer of financial risk. For example, management
contract transfers operating rights to private operator, but it does not involve any
financial risk for the latter – should the enterprise fail to make profit, it is the
government that is finally responsible for any loses.
Restructuring can be explained as
31
“ The composite of all actively taken organisational changes aimed at
transforming the relationships within the enterprise, and between
it and its environment, in order to give it a new focus, character scope,
goals and purpose for existing. “ (SMAK, Kaombwe.)
The quotation in this case bring the sense that restructuring is a particular programme
introduced in any organisation for the purpose of making services in a more efficient
and cost effective manner by changing the way it is posed, controlled and operated.
Restructuring involves such changes as management structure, strategic orientation,
capital structure, legal form, size and composition of the employees etc.
So, restructuring of the Shipping Agencies in Tanzania which is public enterprise
create the concept of allowing private sector to be involved in economic activities in
running commercial activities through commercialisation and privatisation. In a
nutshell, commercialisation implies the introduction of a commercial, business like
environment, in which the Shipping Agent is accountable for its decision and
performance. The main objective of the commercialisation is to increase
management autonomy and accountability.
4:2:0 Objectives of privatisation
The objectives of the privatisation are interrelating world wide in that they focuse
only on the gains from rebalancing the roles of the private and public sectors to
enhance the productive power of the economy. A general conclusion which is
generally derived among many scholars is the superiority of economic performance
of private sector over the public enterprise, also there is spread of view that resources
will be used more productively if they are in the hands of the private sectors.
32
At the national level there may be various objectives but interlinked. The objectives
can be political, economic, fiscal, social, or can be the combination of several of
them. To a large extent achieving one objective means to achieving another. For
example reducing public debt can lead to stabilising of the economy and thus
promoting savings and investment. Achieving social objectives like widening share
of ownership can motivate people politically.
However the main objectives of privatisation can be grouped as follows:
4:1:1:1 Promotion of economic efficiency
The primary objective of privatisation is to promote economic efficiency by fostering
well functioning market and competition. It is generally considered that private
ownership can enhance economic efficiency by exposing management to market
incentives and allowing resource allocation decision to be determined by private
sector responses to relative price signals. In well functioning markets, relative prices
give signals about the relative scarcity or abundance of various resources and about
the needs and wants of consumers and users of products and services. In a free
market economy, profit-seeking responses to market price signals will lead to
efficient allocation of scarce resources, and thus serves the objective of economic
efficiency.
Many Economists believe that, in order to achieve efficiency gains there should be
competition in place and regulation where necessary, thus the achievement of
economic efficiency is mostly likely to be achieved when healthy competitive
markets can be created however appropriate regulation has a vital role when
competition is not feasible.
33
4:1:1:2 Reduction of the fiscal burden of loss – making state enterprises
In many countries one of the major reason for launching privatisation is to assist state
to regain fiscal control and macroeconomic stability. Excessive fiscal deficits
associated with the fiscal burden of subsidies to support the Public Enterprise has
been pointed out as one of the key factors underlying monetary instability and
macroeconomic imbalances in many countries, at all levels of economic
development. Loss making public enterprises contributes significantly to
disenchantment with previous strategies for industrialisation and economic growth,
and the need to regain fiscal control has become an urgent priority.
By mobilising financial resources through sales, privatisation serves to reduce public
debt and associated recurrent fiscal burdens of debt service.
For the case of Tanzania, in 1990 the country had a total public debt of about US$
4.3 billion while the Gross National Product was US$ 3.7 billion, it is correct to say
that the accumulated losses were about 120 % of the GNP in 1990.
The government of Tanzania realised the excessive high price for public sector
dominance, which threatening double-digit inflation and worsening of the living
standard of the people
Such level of public debt can be said to be unmanageable proportions, and debt
service was consuming an excessive share of current government revenues, to the
detriment of core government functions So by contributing to healthier public
finances, debt reduction can also allow more capital to be made available at lower
cost for private investment, thus promoting private sector can lead to economic
growth.
Privatisation of NASACO was crucial in reduction of the burden, losses and
inefficient state enterprise indeed this could lead for the state to release limited state
funds for the financing of other activities including project to fight poverty.
34
4:1:1:3 Balancing the role of the Public and Private sector
One of the objective governing privatisation is to redefine the role of the state so that
the state can concentrates on its major functions, including that of promoting
efficient functioning of market for the public interest, while leaving the private sector
to do what it does best. Some of the core business of the government includes
creating a sound legal and macroeconomic framework, protecting the environment,
ensuring order and security and providing efficient public service, including essential
infrastructure, education and social protection. These are all key elements of the role
of government in creating market conditions for dynamic economic growth.
4:1:1:4 Attract foreign investment
Privatisation can attract new technology, management skills, as well as new business
partners, for enterprise growth. Privatisation tends to free the enterprises from the
budgetary constraints and political interference from the state and allows it to raise
private capital and enter into alliances with strategic partners.
4:1:1:5 Spread and democratise share ownership
It was considered that privatisation can help allocating a proportion of shares to small
investors and to employees and creating a new group of stakeholders in the well
being of the shipping agency and hence boosting the national economy at large.
Further to that it was considered that privatisation could give employees a stake in
the success of their enterprises leading to change labour attitudes, improve
management labour and enhance productivity
4:2:0 Some methods of achieving Privatisation
4:2:0:1 Public offers
In such case where the shares of the company are quoted on the stock exchange and
can be freely traded, the government may decide on an offering. It may also decide
35
to retain a major part of the stock in order to exercise some influence over future
company activities.
4:2:0:2 Management /employee buyout
In this situation the government decides to divest its shares to the employees so that
the latter assumes ownership of the company. A buyout will be more appropriate
whenever employees are highly motivated and keen on buying the company.
Demand prospects must be stable and the size of the company should be rather
limited.
4:2:0:3 Private placement
Through a process of competitive tendering, various potential private investors can
submit a quotation. By negotiation the government can then decide which offer is
the most attractive. It is possible that a consortium of companies makes offers by
banks.
4:2:0:4 Sale of asset
This alternative can be considered when a private investor are not interested in
acquiring the whole of the company, or when better results can be expected through a
partial rather than an outright sale.
4:2:0:5 Joint venture
A joint venture represent an enterprise in which two or more private companies, or a
State Owned Enterprise (SOE) and private investor (s), jointly owns the equity of the
company.
4:3:0 The Road to Privatisation.
Privatisation should not be taken under superficially attempt, as it may be dangerous
and misleading particularly when such policy shows success in some other countries
of the world. Thorough understanding of all their implication should be taken into
36
account. This is due to the fact that this policy is too sensitive thus need
comprehensive analysis which will ensure that proper institution are in place.
The author is of the opinion that the future of privatisation and countries economic
development will be at high risk if proper procedures will not be taken into account.
For some economists, privatisation is seen as a short-term means of generating
revenue and longer-term methods of expanding tax revenues from more profitable
private operations.
Usually privatisation involves competitive bidding leading to conflicting interest at
stake, thus selection of the attractive bid is an exercise that requires powerful skills,
transparency and objectiveness.
The author of this dissertation is a true casualty of a privatised Company so basing
on his experience he think the following steps deems to be fit followed prior to
privatising company.
4:4:0:1 Communication and campaigning for privatisation
The author begins this section by making citation from Samuelson, 1998, p.188,
“Risk varies inversely with knowledge “ Irving Fisher (1930)
What Fisher tries to narrate here is that risk in any project can be minimised by
having more information thus, the more the knowledge in a project, the higher the
chances for success for that particular project is. So information is power!
Privatisation is similar to any other project that has an element of risk coefficient,
meaning that there is a chance for the assumed objectives of this policy not to be
achieved.
So one of the technique used to make this strategy successful is to create proper
information and knowledge to all participants through communication.
Once management has decided to launch privatisation as the need may seen to be.
The management is duty bound to communicate to all employees and public, inform.
Communication is important as it plays a role of:
37
- Creating transparency and confidence to the staff of the company and public at
large.
- Bring a sense of democracy,
- It also overcomes resistance to change (normally there are personnel who are
afraid of reforms since they are afraid of loosing they key position.)
- Communication also creates credibility to both the public and to the investor,
since the investors will be convinced that laws and conditions of sale will not be
violated.
In summing up, the state owned company, which needs to be privatised needs
extensive publicity campaign initially at home and abroad. Detailed financial
information included in the prospective drawn up in accordance with the normal
criteria for stock market floatation. In some case where the Company is going to
be sold information should be publicised in the newspaper, and television as well.
Employees need to be well informed about the prospects and their future benefits
regarding privatisation to be launched.
4:3:0:2 Legal reforms
It is now clear that, Privatisation of Public Enterprises involves transfers of Public
property to the private hands, however, and the transferred properties may worth
billions of money.
Given the fact that, history is full of corpses of corruption and disputes and lack of
trust.
It is on this cornerstone that, comprehensive and detailed legal framework is crucial
so as to avoid the likely disputes that might happen during the course of privatisation.
Review of the country’s legal system and the legal status of PE´s in order to
determine wether there are particular legal issues such as ownership rights or
problems arising from the transfer of the PE´s to the private sector. The constitution
should address the legal structure and the nature of the PE´s included in the
privatisation programme.
38
Establishment of property and ownership right is very important, property right must
be stable, clearly defined and should be legally enforceable. Participants must be
able to use these right freely and to transfer them to other parties unhindered.
Unbiased and free judicial platform should be established to deal with property right
and contractual obligations. A well-defined property right protected by law is crucial
to the operation of the competitive economy.
Structuring of privatisation of the legal system can be of specific legislation for each
privatised enterprise or can be legislation that covers the entire privatisation
programme. Specific privatisation legislation can facilitate and speed up the process,
even if privatisation is already technically permitted by law.
Legal framework should also be supported by reviewing institutions, control or
enforce the rules as well a dismantling the excessive and unnecessary bureaucracy.
By doing so there shall be avoidance of conflicting responsibilities.
Laws that provide guarantee to the investors are very important since they build
confidence to them there should be provisions that guarantee foreign investors non-
discriminatory treatment and mechanism to guarantee foreign capital and tax
stability.
Labour laws and legislation regarding employment should also be in place as part of
legal framework. These laws need to be sufficiently flexible to allow new investors
to conduct any organisational reforms for the purpose of improving economic
efficiency of the enterprise. The condition of the employment safeguarding the
interest of the employees, stipulating retrenchment condition, compensation for loss
of employment and pension schemes.
Privatisation will work smoothly under conducive business environment, and this is
possible once the government establishes entities to work on, these entities may
include contract law, company law, insolvency law, trade law, accounting and
39
auditing legislation, laws regarding the transfers of liabilities, foreign investment
laws, laws on arbitration and dispute settlement, capital market and securities
legislation, commercial banking laws, laws on taxation, competition laws and
environmental legislation contract law and company law should also be included.
Finally, legal framework as an important element in privatisation process should
address the capital matters, such as the minimum paid up capital for PE´s. The tasks
and duties of the directors and corporate officers needs to be clearly defined.
Shareholders´ right should be protected.
4:3:0:3 Tendering procedure
Another popular procedure in launching privatisation of the company while ensuring
transparency is called “tendering procedures “ It may include the following steps
• All bidders should be provided with the clear objectives of the company
privatisation and the requirements that the bidders have to meet should be stated
in as much detail as possible.
• A standard format should be adopted regarding information that should be
submitted by the bidder (company profile and the structure , financial
performance capabilities etc )
• Tenders should include a detailed business plan on envisaged operations,
encompassing the inevitable market research.
The author concludes that, to ensure the objective appraisal of all competing bids, the
evaluation should rely on several clearly defined clearly criteria. However, a
completely objective judgement is extremely difficult, as assignment of weights to
the various evaluation criteria is always subjective. Since the case of one bidder
clearly dominating all others at all points occurs rather seldom, priority consensus,
and possibly quantification, on the weight to be attributed to the various evaluation.
Agreement on this basis can substantially ease the onerous task of the evaluation
team, it adds transparency and shortens the decision time.
40
As it has been said before that privatisation involve long process and should not
taken at surprise neither as an overnight decision. Privatisation should always be
taken with great care.
However, the author is highly convinced that there is no clear model for restructuring
as it all depends on many factors including geographical, economical, social values
of the society, level of technology and so on.
4:4:0 Implementation of Privatisation Policy
In my previous chapter 03, I have explained the problems of the Shipping Agencies
Company in Tanzania and indicated the need for the government to launch reforms at
earliest. This was responded by the government to formulate special commission
responsible for specifying corporations which need to be restructured and also to
executes plans for reforms.
The formation of PSRC in 1993 i.e. Parastatal Sector Reform Commission assumes
state responsibility of restructuring the ear marked companies.
At the moment over 68% of the companies have been already privatised including
Shipping Agencies (NASACO), making a total of about 395 companies.
Many other enterprises are in the process of privatisation including public utilities,
infrastructure, financial institutions, Port Authority just to mention few.
Care must be taken in conducting privatisation, sufficient studies must be taken,
consultacy services should be provided and regulatory framework should be in place.
Without those mentioned matters the author has the feeling that there shall be no
clear difference between privatisation and selling of the local companies at a take
away price.
4:4:1:0 The challenges facing the Privatisation Policy in Tanzania
The pace of privatisation in Tanzania and in third world in general can be attributed
to many factors some relating to practical problems of implementation, others
reflecting reservations as to repercussion, that would follow the adoption of
programme of privatisation.
41
The more difficult the environment the greater the likelihood that privatisation comes
up short- even though it is precisely in the more difficult environments that the gains
from privatisation are most needed.
In weak economies, implementing successful privatisation programme becomes a
daunting challenge. Certainly those responsible for managing the programme, from
the policy makers at the highest levels to the managers charging to the carrying out
the transactions.
However, there is no standard solution to the often perplexing problems that crop up
in translating a policy commitment to privatisation into results, indeed there is no
universal “cook book solutions” to the challenges of privatisation.
Having given the above briefing, the author wishes to explain some of the main
challenges facing privatisation in Tanzania and developing world in general.
It is to the understanding of the author that once below mentioned problems are
solved then implementation of privatisation programme will be successful.
4:4:1:2 Lack of capital market
It is obvious that Tanzania being one of the developing country is facing the problem
of capital market thus there is insufficient capital to handle large equity of sales. The
absence of a well-developed financial system means that divestiture will have to be
made by direct placement with local or foreign interests large enough to handle the
transaction. This means that the local government may be unwilling, however, to
have its assets transferred to certain groups of potential buyers, if it results in a
further concentration of wealth of the fewer. In some countries, it will be politically
unacceptable to sell enterprises to wealthy minority groups. In this respect objection
may be raised to increased ownership by foreign interest.
4:4:1:3 Uncertainty of the Gains
One of the major constraints on the pace of the privatisation policy in Tanzania may
result from uncertainty as to economic benefit of privatisation. This is due to the fact
42
that the divestiture may do little to improve the economic performance of the
enterprise if it simply transfers the ownership from public to private sector. In this
regard financial benefits may also be limited, if, for example, tax and subsidy
concessions are offered as inducement to the sale of loss making enterprises.
4:4:1:3 Resistance to Change
The resistance from interest groups that stands to lose from privatisation is likely to
form a powerful political constraint. This opposition will come from labour force
employed in the public enterprises that fear job loses, and from government officials
whose areas of authority and opportunity for patronage will be reduced. In some
places where liberalisation is threatened, further resistance will come from those
groups who currently enjoy the protected economic rents created by the system of
regulation and control. The opposition by various sectional interests that are
threatened by privatisation may well be more immediate and more vocally expressed
than the anticipated longer-term benefits from greater economic efficiency.
4:5:0 Alternative Reform Methods
In this section the author will discuss about some of the alternative methods which
can be used in the reforms for creating efficient and competitive market condition.
In this regard a collective efforts from both the private sector and the government is
needed in achieving the projected objectives. These reforms place responsibilities
for the ownership, development, operation and provision of labour based on various
criteria.
- Sometimes these reforms are called non- divestiture options, which can be an
intermediate step towards sales by demonstrating commercial viability of PEs to
be sold. Non – divestitures range from corporation to management contract,
which typically involves the removal of subsidies, as well as exposure of the
private sector PE to private sector ethics and competition. The main pe of non-
divestiture options includes
43
- Commercialisation and corporasation
- Privatisation of management (management contract, leases or concession)
contracting out.
4:5:0:1 Commercialisation
This is the strategy which involves the changes of public enterprise into
commercially viable. In this regard the management of the PE is given the autonomy
and accountability for decision and its performance. In order to achieve commercial
viability the PE should introduce structural and management changes or it may be
contracted out. If the management is contracted out, then it should spell out the
obligation and responsibilities, which are based on negotiation between the
government and the PE managers. A clear contract plan, which is simple and
preferably short specifying the enterprises objectives in terms of goals, and quality of
services or goods produced and the desired overall social impact should be stipulated
clearly.
It is believed that one of fundamental purpose of this strategy is to expose the PE to
operate within the ethics of market leading to more efficient services greater
flexibility and less dependence on government support. Commercialisation is being
regarded as precondition towards privatisation, further to that, this step enables the
management of the PE to gain experience towards private sector involvement.
Commercialisation of the PE should address inter alia the following issues:
I. The role of the government should be limited in service provision i.e. should
not directly be involved in competition with private sector.
II. Streamlining the decision making process for the purpose of realising cost
effective and accountability.
III. Making the PE responsible to users by providing services according to market
demands, abiding to market discipline and commercial principles.
There are number of advantages for the PE to undergo commercialisation
44
a) Higher efficiency in management of the PE, this will be achieved by management
motivation which is included in the management agreement.
b) It is possible to achieve accountability due to the introduction of cost / profit
centres focuses on efficient use of resources.
c) Operational efficiency can be realised by exposing the PE to market condition of
competition without government support such as subsidies. This makes the
enterprise to focus on customer requirement by improving the quality of services
so as to attract and keep customers.
d) The management will have authority to utilise earnings to improves
competitiveness in technology and personnel training without interference from
the government.
However some of the weaknesses of the commercialisation strategy are as follows:
a) The strategy may require some additional resources from the state, this may be a
barrier to the achievement of the commercialisation, this said to be one of the
block because most of the government are experiencing financial crisis and many
world financial institutions are waging campaign against the government to stop
further investment in the public enterprises.
b) Commercialisation gives limited autonomy leading to limited flexibility in
achieving strategic goals especially those related to foreign business or
investment opportunities,
c) Commercialisation does not get rid of bureaucratic constraints as fast as it is
supposed to be thus commercialisation is a slow process and its effectiveness
depends on a number of factors such as
i) Gradual introduction of more commercial policies especially in the
areas of marketing and customer servicing.
ii) It requires changes in the structure and size of the labour force,
which involves re- negotiation of the terms and condition of
employment . This can hardly be achieved in Tanzania due to the
45
existence of weak trade union, which is, affiliated with the ruling
party also the low size of the official working group.
iii) Changes in attitude and cultures in tuning to that of private sector
and that of management and staff. This has been a long outstanding
problem in many of the PE´s that may not be easy to change in a
short run. This may further require a very strong leader to change
the style of the management.
However putting the weakness and the strength of the commercialisation
strategy in the fair balance sheet, the author still would prefer this method
to have been used in reforming of NASACO as it suits the culture and the
working environment of the Company.
4:5:0:2 Corporatisation
These goes further than commercialisation, this kind of strategy involves the
transmission of the PE into a corporation or other business organisation as
determined by relevant laws. In other words is like converting the PE into a legally
and economically independent legal person with board of directors. In this regard
the government continue to retain its equity ownership but finally the government
share equity can be sold, for example, once the company has secured a market
position and has become reasonably profitable.
Some of the advantages of this strategy include that of allowing the enterprise to
adopt to the generally accepted accounting principles of the private sector and it is
also adopt the private management principles of competition and rewards linked to
performance.
It was not easy for the Tanzania Shipping Agency to enjoy the corporatisation
strategy simply because it has never be given fully autonomy for discharging its
responsibilities freely from the government approval.
46
4:5:0:3 Deregulation / Liberalisation
This involves the processes of the government to untie the monopolies statues by
relaxing the rigid or constraint of economic regulation hence creating free market
environment, operators are then provided greater flexibility to invest, fixing of
business and make it possible to negotiate tariffs.
The main purpose of deregulation and liberalisation policies is to create better
performance in a competitive market situation. Deregulation makes it possible for
the Public enterprise to compete equally with the private enterprise. This can be
achieved by having rules and regulations that are attractive to Private Sectors.
Some of the advantages of this policy include
a) Flexibility and efficiency can be realised by allowing free market environment.
b) Reduction of unnecessary bureaucracy thus reducing cost.
c) Price setting becomes feasible and closer to the social optimum due to relaxation
of unnecessary regulations.
For the case of Tanzania, this alternative has been greatly implemented since 1985
by elimination of the State Price Commission which was responsible for setting
prices of goods and services all over the country. This shows the extent of which the
government of Tanzania were prepared towards private sector.
4:6:0 The Impacts of Reforms and the Critique of Reforms Commission
4:6:1 Background information
The impact of structural adjustment programmes on employment depends strongly
on the pre existing economic situation, the magnitude and speed of technological
change, the external environment, the nature of the programme itself and the
functioning of the labour market. In general structural adjustment reforms tend to
lead to reductions in employment in the short term, but if the key objective are met
they should promote long term employment growth.
47
However the retrenchment strategy has the advantage of solving the financial
problem of the company more quickly, this can be attained by improving profitability
through reduction of loss making units indeed the strategy can decrease the operating
cost that could otherwise be involved in these business and finally the strategy can
optimise the investment portfolio by spending money in business whose return are
more certain
4:6:2 Weaknesses of Reforms Commission
It should be recalled that in 1995, the shipping agency of Tanzania retrenched about
250 employees and three years later it retrenched about 230 employees leaving about
200 in a master payroll. The retrenchment strategy, which was conducted in two
phases, had the following weaknesses.
• Lack of transparency – the divestiture programme was not clear to many of the
employees, workers were less involved in participation of the whole process. So
when, the programme was launched most workers were not prepared. .In a true
democratic community divestiture of Companies should be done in a
transparency manner. Workers need to be informed so that they can budget and
plan for their future arrangements. PSRC (Parastatal Sector Reforms
Commission) as the state arm in carrying structural reforms is duty bound to
educate public about the expected reforms, such openness will clear some those
rumours that the appointed institution is corrupt. According to one of EU
mission to Tanzania headed by Mr. Peter Christiansen
(http://www.ippmedia.com/guadian/, May 2000) he told Reuters that Tanzania
Government is not doing enough in fighting corruption, he further argued that
reforms in the country are mainly blocked by corruption. He finally summarised
by saying the following,
“ We donors feel that the government has not forcefully enough
Implemented the anti – corruption strategy and the action plan
has not been given total strength needed to be effective “
48
One of the ways of clearing such strong words should be practising transparency not
only within the country but also outside Tanzania.
The author wishes to put his position very clear that he is not accusing the
Commission for being corrupt, but rather the manner in which it conducts and
execute his obligation are rather questionable and full of doubts:
• The programme has resulted in a massive loss of jobs, and to make the matter
more badly, those who were made redundant were not fairly compensated and
oftenly the payment is associated with undue delays in effecting payments. This
has greatly affected the morale of the workers greatly due to uncertainty of future
employment.
• Lack of common formula in computing terminal benefits among workers was one
of the experienced problems. NASACO as a state owned enterprise had its own
terms and conditions of service on which terminal befits and retrenchment
packages were based. Employees of different sections of the same Enterprise
were awarded differently packages ranging from golden handshake to empty
handed regardless of years in service
4:6:3 The weaknesses of PSRC in Divesting
As I have briefly indicated in the previous chapters about the role of the PSRC in
conducting privatisation the author has observed some weaknesses as per reforms
commission:
a) Lack of financial capability – The commission is severely in shortage of funds
for carrying out some programmes including that of retrenchment., consequently
to this, terminal benefit for retrenched Parastatal employees has been slashed by
abolishing the generous employment terminal benefit packages used to be paid to
retrenched. The new package provides for as little as one months´ salary as
terminal benefit, while in the previous the benefits started as at least 44-months´
49
salary. The package is applicable to all workers being retrenched, irrespective of
the number of years served in the state owned firmed.
b) Indigenous Financial constraints
PSRC is paying little attention for the indigenous in buying shares or equity,
what the Commission cares most is one who wins the bid, consequently many
firms are now owned by foreign companies. It is well understood that many
indigenous Tanzanians have no sufficient capital, skill, and technology in
running those firms that are being reformed. However, the PSRC was supposed
to design models and strategies of which could enable the indigenous to
participate in the on going reforms
C) Poor monitoring of post privatisation effects
The PSRC after authorising reforms for some companies and possibly collect the
required revenue, the commission does little efforts to monitor the progress of the
new investors. It appears that the Commission is only interested in short run
gains.
4:7:0 Licensing of Private Agents aims and impacts
NASACO as a National State enterprise has been serving about 40 shipping lines.
Problems of such PE´s has been explained in the previous chapters especially chapter
03.
One of the solutions in facilitation of the whole idea of trade liberalisation that
started in Tanzania in mid 1980´s was to issue trade licence to private ship agents.
The authorisation of licensing was issued from the Ministry of Trade and Transport
and became effective in 1998, actually there were no written agreement between the
lines which run their own agencies and the Tanzania government.
Within the period of less than a year about 35 ship’s agent were already registered
with the state. With the authorisation, nearly all the major lines now operates their
own agency business, those lines includes P&O Nedlloyd, MSC, CMBT / Safmarine,
Maersk, Inchcape and others.
50
However, the withdrawal of those major shipping lines led NASACO to be in a
critical financial crisis as nearing the closure of the shipping services.
On other hand, the licensing process has created reasonable relief to many
shipowners / principals as manifested by the following quotation,
” It took a while, but the Tanzania ships agency sector can now accord itself the
status of being totally free, liberalised and competitive…In the past all work had
to be channelled through the government organisation, NASACO, which was less
than effective and almost totally ineffective. This in turn led to all major shipping
lines having to operate a ” protecting agency ” along side the state one that they
were forced to use.” Lloyds list No. 57524 pg. 19
The advantages of this process are similar to those already mentioned in the previous
chapters in respects of deregulation and liberalisation in general. However the major
one can be said that there has been considerable increased in effective documentation
leading to many ships to spend less time in port hence saving on demurrage. In this
aspect it can also be said that speed of the vessels turnaround has increased.
Claims and other queries that formerly had to be channelled to NASACO can be
replied within few minutes hence trade has been facilitated.
However, the procedure suffers a number of weaknesses. Taking into consideration
that the authorisation was not documented a number of issues needs to be addressed.
The authorisation of licensing does not lay clear grounds for the application
procedures indeed it does not indicate the qualification of the applicants.
The authorisation does not show as how the Government will monitor and control the
activities of the shipping services in terms of tax collection or in case of an offence
committed by the agent thus the legal framework in this particular case has not been
covered
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4:8:0 Conclusion of the chapter
In this chapter we have seen various methods and process of restructuring of the
Public Enterprises as response to poor performance inefficiency leading to financial
losses. The reason for privatisation and its consequences has been also mentioned.
In this case, privatisation of the shipping services in Tanzania believed to have more
advantages than disadvantages. At the moment it is not easy to establish financial
details regarding the success of the programme since it has been launched hardly a
year ago.
Further to that, the author is optimistic that, the fundamental principles of divesting
of the shipping agencies have not been followed accordingly.
Caution need to be taken not to assume that privatisation is the general solution
(panacea) for every inefficient or loss making PE neither the policy option should not
be over exaggerated. The author further views that an improvement in economic
performance of the PE is more likely to become successful if there is an increase in
market competition than just a matter of changing ownership. Laissez –faire should
be the logical response to this conceptualisation with considerable influence of the
state power to secure necessary conditions under which stable market relation can be
reproduced.
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CHAPTER 05
5:1:0 GLOBAL CHALLENGES FACING THE AGENT AND THE
RECOMMENDED STEPS FORWARD
In the previous chapter, we have seen as how the Public shipping agency has been
affected by government policies attributed by the global economic changes, we have
also seen various reforms strategies like privatisation, commercialisation aiming at
restructuring the agencies in Tanzania.
Privatisation and its impacts have been discussed at length. All these reforms had
many purposes including that of possibility of reviving the Organisation.
However, having critically analysed the role of the intermediaries and the ship agent
today, the author is afraid that even if NASACO could be re - empowered his
monopoly power, still his roles and functions could have been strictly limited due to
some challenges that exist today. The author would like to mention some of those
challenges of which the ship agents and other intermediaries like shipbrokers are
facing, these challenges creates a sort of limitation to these agents.
5:1:1 e-commerce
Information Technology is changing our business environment in a way few could
ever have thought possible and even fewer were prepared for the changes.
In the modern world today due to technological changes especially on the IT and
internet in particular, ship agent seems to be limited in his daily operational
functions.
53
Consider a case prior to internet, the functions of the ship agent as before the arrival
of the ship, the agent had a numerous obligations including that of informing the port
authority for the arrangement of pilotage, tugs, security, cargo owners, customs, ship
clearance, co- ordinate port operations, signing the bills of lading, cargo canvassing
and pays all the expenses of the ship in the port just to mention few. The details
regarding the functions of the ship agents has been explained in chapter 02.
In this particular case the agent uses paper, telex, telephone, or fax to communicate
and discharge his due obligations in a due and diligence manner to the relevant
parties.
So shipowners and or cargo owners had to appoint ship agent in various port so as to
carry out those mentioned tasks.
But with the introduction of Internet and e- commerce, (i.e. making business
electronically) maritime and shipping industry seems to take a different image. E-
commerce is about internet, and particularly the Web which many have perceived
has significant advantages over the others like EDI.
The Web uses Transmission Control Protocol (TCP) / Internet Protocol (IP) which is
multi – platform non-proprietary protocols, and can therefore be used in any suitably
equipped computer. It allows exchange of data in non – structured message formats
marking it significantly more flexible than EDI.
Internet seems to take some of the space that was once occupied by the ship agent.
With the internet some shippers have possibility of making screen booking via the
internet and at a lower rate than they could have clinched personally as rebate are
sometimes being offered as incentives for using the facilities, the shippers will not
even pick a phone. Screen booking makes the possibility of the shippers to know the
freight rate, name of the ship, exchange rate arrival and departure of the ship indeed
payment can also be done through Internet.
The core purpose of the screen booking is to consolidate shipments from the small
shippers and fill up excess space on ship, hooking shippers onto their systems with
the promise of lower rates. By consolidating small shipments, and filling up excess
54
space; these ventures aim to offer shippers more attractive rates than they would be
able to negotiate normally.
It is possible now for a shipper or shipowner to know exactly where the ship is at
any given time, the information being completely accessible from their desk top
simply by using website and using a series of instructions, making the vessel’s
position to be identified.
Cargo booking could be made possibly through the website hence limiting the
functions of the ship or port agent.
One shall have to agree that with internet which is high level of technology at the
moment making the shipping activities to become more faster, and relatively
transparent than before leading to reasonable economies of scale, quality and safety
measures has also been tremendously improved.
5:1:2 Decline in Freight Rate
For some reasons including that of improvement in ship technology leading for the
ships to be faster, Asian economic crisis, increased carrying capacity all these and
others have contributed to the general decline of freight rate as from 40% to 6%
during 1990´s and the unit cost of the sea freight fell some 70% in real terms during
the past twenty years. (Payer p. 269)
Decline of the freight rate has impacts to the ship agent, this is due to the fact that,
one of the source of his income is derived from the cargo booking computed on the
basis of freight commission. Thus if the freight rate is higher than the agent will
have higher commission and viz. versa. So, given the fact that there is a decline of
the freight it is automatically that the revenue received to the ship agent will be also
low thus fluctuation on freight rate has impact to the ship agent too.
5:1:3 Mergers, Acquisition, Alliances and take over.
There has been a great pace of shipping lines to merge or to form alliances and take
over, some of the purpose for this is being an attempt to achieve better slot utilisation
and lower operating cost. With alliance it is possible to serve more ports more often
55
and be more responsive to customers with dramatically less investment than it would
have taken for single shipping line indeed tracking and tracing of containers in the
multiple port, from the port of loading to the retailing centres becomes more easier.
In such situation whereby there is mergers or alliances, it is obviously that one of the
ship agent will be redundant.
The logic behind this redundancy is very simple. Consider a situation like when
CMA merges with CGM, which were late 1998. In this case prior to merging each
had separate agent in different port. So, when they merged together means that they
will consolidate their services and provide as one entity, hence keeping two ship
agents in each port will be economically not accepted. Hence one of the ship agent
has to be declared redundant.
5:2:0 Alternative Strategies for the Agents and intermediaries
5:2:1 Pondering About the Future
“ It is better to light a candle than to curse darkness.” Roosevelt, 1884-62
At the moment the Company is at the crossroad, with about 200 employees in a
master payroll with assets worth more than $20 million. The business of agency is
not doing well any more for the reason already explained. So the company needs to
do something for the purpose of generating income for the future. The critical
question one has to ask is what kind and which new business should the company
venturing for?
In making decision as a response of the above question, in commencement of any
type of commercial venture, one needs to have a clear indication of the size of the
capital, expertise of the employees and the possibility of the already existing network
and geographical location hence from this point the nature of the business can be
projected.
56
As I have indicated before, NASACO has capital assets worth more than $20 Million
(www.africaonline.co.tz/nasaco/nasaco/htm), the money being in assets form that is
in warehousing, container depot, various estates. With such amount of capital the
company can still venture some business which may generate reasonable income.
One of the advantages for this is that Banks and other financial Institutions do have
confidence hence they can provide loan or other support when required.
Having such assets gives confidence to the customers that, the business is not
conducted by fly by night operators, thus, possession of tangible assets gives the
impression of trustworthiness of the company.
Another important aspect in consideration of the new business to be ventured should
be based on the previous experience. NASACO has been dealing with the shipping
agencies for about thirty years, thus dealing with all kind of import and export
documentation and other shipping arrangements.
Some of the staffs are well trained in financial management, maritime and freight
forwarding education. Other expertise as per general functions of the ship agents
includes ship chandelling, cargo tallying etc.
Location wise, NASACO is having three major offices each of them being located
around the port areas in three different regions, the distribution of these offices are as
follows, Dar es salaam, Tanga and Mtwara. The company also has three more
branch offices located in Mbeya, Kampala and Kigoma. Having such network the
company can benefit from the advantages of contact and marketing advantages.
With regards to international network, NASACO, has been involved in dealing with
about 40 shipping lines in each year, thus international contact is not a problem. The
author is convinced that, contact for the NASACO is not a barrier for venturing other
business.
5:2:2 Selected Alternative for the Prospects
Shipping professionals needs to be on the alert for the changes with respects to
environment. This requires a lot of activity, creativity, flexibility, imagination and
57
vigour. Without these characteristics the future for the ship agents would be very
little and narrow in this new millennium.
In the similar truth of lines NASACO also need to understand that, “vessel cost
represent only 10% of the carrier cost and on the other hand, land side expenses
represent more than two third of the average carrier’s cost. So, there is so much on
rail and trucking business in addition to managing ship”. (International Container
Review 1998, p. 35)
The author looks the future of the ship agency and other intermediaries to be in the
premises of doing logistics services, which creates value added to the customers.
One of the major reason for my suggestion is based on the fact that, customers are
looking for transportation and logistic providers who meet their requirement by
cutting inventory through just in time deliveries, cut transit time, cost and enhance
overall efficiency of their operations.
Service providers needs therefore to focus more on customer requirements due to
globalisation of economic activities.
More indeed, shippers are looking to carriers to help quickly and simplify their
operations and make their supply chain more efficient.
These are services with additional functions necessary for supporting logistics
movement and flow of many economic transactions and eventually facilitating the
sale of goods and services in Tanzania regions and to the other landlocked countries
like Burundi, Congo, Uganda, Rwanda, Malawi and Zambia (see the inserted map).
This is possible due to the fact that NASACO is located near the port of Dar es
Salaam hence possible to make arrangement of transit cargo. Other pre qualification
has been already mentioned above.
In order for the NASACO to be service provider of the value added services the
company in question has to become primarily NVOCC and other logistic provider as
explained hereafter. In this case NASACO shall have to undertake the following
functions;
• Consolidation services
58
• Intermodal inland and co ordination of transit cargo
• Warehousing and storage
• Logistic planning expertise
• Packaging
• Tailoring of information services that will allow the agent to have total and
continuous shipment trucking with visibility to inventory in transit, which
reduces cost and transit time.
• Depot administration
A good example of Ship Agents who undertake some of the above mentioned
functions include Bay Shipping A/S of Aarhus – Dernmark , Nederlands
Bevrachtirgka of Rotterdam, UNIMAR –Unimar Agenciamentos Maritimos Ltd of
Uruguay etc.
5:2:3 Consolidation and shipment cargo
This is the combination of various products from various shippers into a single
container, normally the status of this container is called, LCL Less than Container
Loads. In many parts of the world, this kind of job is being performed by NVOCC
i.e. Non Vessel Operating Common Carrier they do consolidates small shipment
from different shippers into full container loads and accept responsibility for all
details of the international shipment from the exporter’s dock including paper work
and transportation.
The author is convinced that if NASACO will assume some of the responsibilities of
NVOCC there might be some success and bright future.
NVOCC are Multi modal transport operator who offer services for transport of
goods to any part of the world and may also undertake to perform a variety of
functions on behalf of the consignor such as groupage of LCL cargo, documentation,
packaging, warehousing, customs formalities, cargo insurance etc.
NVOCC are normally referred to as Freight Forwarder, simply because they do not
own means of transport but they do operate by sub contracting logistics activities
from other service providers like railways, shipping companies and road hauliers.
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The extended advantage of NASACO being NVOCC is that he can extend his
services into door to door transport chain leading to considerable increase of the
business’s income. Having already involved in door to door transport the next step
will be to organise the entire movement of goods from consignor to consignees on
behalf of the cargo owner. In this case NASACO will handle the transport of goods
from and to certain locations. Thus, he will be serving local clients and the
neighbouring countries like Burundi, Rwanda, Zaire, Malawi, and Zambia (these are
landlocked countries as mentioned earlier) The map below indicate as how goods
will be transported to other regions to the landlocked countries.
By doing this kind of job NASACO will be receiving some fees from the clients for
the service that has been rendered.
.
Map: Tanzania main transport routes and land locked countries
(Source: www.africaonline.co.tz/nasaco /map.htm)
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5:2:4 Packaging
Logistically, packaging provides during storage and transport. This is especially
important for long distance over multiple transportation modes.
Packaging can ease movement by properly designed for the warehouse configuration
and material handling equipment. The best package increases service decreases cost,
and improves handling. Good packages can have a positive impact on layout design
and overall warehouse productivity.
Thus, NASACO being the company with expertise personnel can handle the business
of packaging as a means of earning revenue. Packaging serves mainly functions of
marketing and logistics. On the marketing side, packaging provides customers with
information about the product and promotes the products through the use of colour
and shape. The package provides the final interface between the consumer and the
customer. Consumers generally choose to buy from the image they perceive that a
product has, and what they perceive is heavily influenced by the cues given on the
product’s packaging brand name, colour and display. The best way in making
packaging is to use unambiguous symbols like the UPS (Universal Product Code).
From a logistics perspective, the function of the packaging is to organise, protect and
identify products and materials. Some advantages of good packaging
• Lighter packaging may save transportation cost
• Careful planning of packaging size/ cube may allow better space utilisation of
warehousing and transportation.
• More environmentally conscious packaging may save disposal cost and improve
company’s image.
5:2:5 Warehousing
As I have pointed earlier that NASACO is having one warehouse located in Dar es
Salaam and located just near the port. Warehousing supports time and place utility
by allowing an item to be produced and held for later consumption. The fact that the
61
warehouse has been located near the port gives the opportunity for the cargo to be
transported in hinterlands and other places for future consumption.
Traditionally, warehousing provide storage of products (referred to as inventory
during all phase of logistic process.
However, increasingly, warehousing is used as “flow through “ point rather than a “
holding point or even bypassed (e.g. scheduled deliveries direct to customers), as
organisations increasingly substitute information for inventory, purchase smaller
quantities, and use of warehouses as “consolidation points” to receive transportation
rates and service levels.
5:2:6 Reasons for warehousing
• Achieve transportation economies
• Achieve production economies
• Take advantage of quantity purchase discount and forward buys.
• Maintain source of supply
• Support the firm’s
• Meet changing market condition (e.g. seasonally demand fluctuations,
competition )
• Overcome the time and space differentials that exist between production and
consumers.
• Accomplish least total cost logistic commensurate with desired level of customer
service.
• Support just in time programs of suppliers and customers.
• Provide customers with a mix of products instead of a single product on each
order.
• Provide temporary storage of material to be disposed of or recycled (i.e. reverse
logistics).
5:2:7 Location analysis
NASACO warehouse have been located near the port, this is the best location for the
warehouse since it can render services to a greater number of consumers including
62
port users and some factories that are located near the warehouse. The site selection
decision has been approached by macro and micro perspectives. The macro
perspectives examines the issue of where to locate warehouse geographically within
general area so as to improve the sourcing of materials and the firm’s market offering
(reduce and/or reduce cost) The micro perspective examines factors that pinpoint
specific location within the large geographic areas.
NASACO is having an added advantage in selecting and locating site for its
warehouse, the following factors that are presumed to be advantages are worth
mentioning:
• Quality and variety of transportation carriers serving the site,
• Quality and quantity of the available labour.
• Labour rates are reasonable.
• Cost and quality of industrial land.
• Potential for expansion.
• Tax structure.
• Nature of community environment.
• Cost of construction.
• Cost and availability of utilities.
• Cost of money locally.
5:3:1 Strategies for the Success
The best way for the NVOCC and the value added service provider to become
successful is to try to understand and satisfy his client. Some of the methods
employed in achievement for this is to do the following;
• Listening from client and have an understanding of what the client want.
• Asking the client as how he thinks that he can be served better.
• Investing heavily to the existing clients
• Doing marketing that adds value
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5:3:2 Marketing tools
• The company should conduct sufficient research, by analysing client profile and
media tracking.
• They should conduct in house seminars inviting some core customers, Customs
Officials, Port Authority, and other related officials.
• Writing articles and get quoted in the press.
• Speeches and conferences.
• Networking referral sources.
• Sponsorship and exhibition.
• Mailshots and brochures.
• Advertising in different media e.g. Television, Radio, and thanks to the Internet
they can also create web site hence becoming global advertised.
5:3:3 Formation of the Ship & Brokers Association
The Shipping Agencies of Tanzania needs to form association such as Kenya
Shipping Association (KSA), Federation Shipping Association of Antwerp etc and
join with FONASBA of which in each country has to be represented by a national
association. This will put shipping agent at par with other national organisations like
owners, shippers etc. The statutory purpose of such federation or association among
others includes;
• To defend the profession of the ship agent or broker and to be consulted
whenever the problems arise.
• To encourage a sound and fair practice of the profession among the members by
representing, studying and defending interests of its members by insuring an
efficient exchange of information.
• To protect the port interests as well as to the shippers.
The major important point of interest is statutory recognition of the profession. In
Tanzania at the moment, it appears that the ship agent and brokers profession is still
an open profession and indeed there is no clear law on establishment. Nevertheless,
the business is confronted with increasing responsibilities in many matters like
customs, dangerous goods and so on.
64
For example, when seamen are signing on and signing off subject to visa
requirements, the agent in this case is held responsible for the payment of all possible
accommodation and repatriation expenses in case the seamen involved disappears.
The agent also carries considerable responsibility for the notification of the
dangerous goods within the scope of local and international regulations, such as the
minimum requirements of the vessels bound for or leaving the port and carrying
dangerous goods or polluting the port.
5:3:4 ISO Certificates
Acquiring quality assurance certificates ISO 9000 and 9002 and investing in the
latest generation of computer and information technology system. This will offer
them a rapid response and provide the rapid response and provide the highest quality
service to the customers, a good example of such kind of Ship agent who provides
these services include the Spanish Ship Agencies. The author is convinced that the
move will make the agent to have a clear focus in this century that is governed by
complex, competitive and ever changing maritime environment.
5:3:5 Training need
Training is very important, the author considers this as a wheel for lubricating
development. Thus, the government and well financially investors need to open
various colleges, which deals with logistics and ship agencies. Various certificates
like those issued by the ICS (International Chamber of Shipping) need to be
introduced.
Training will improve working culture of the staff involved in this sector of agency,
hence training will improve workers attitudes, and indeed training will enable the
involved parties to adopt new technologies.
Further to that it is expected that training shall reduce mistakes of which can cause
accidents and may be very expensive.
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5:3: 6 Change of Company name and Logo
Given the fact that the discussed company had overdue problems as stipulated in
chapter three, the author would like to advise the management to change its name
since many customers have lost confidence on its performance.
Having changed its name then it should diversify its activities into logistic supply
chain or value added services. In this case it will be possible to capture the growing
market.
5:2:7 Conclusion of the chapter
In this chapter we have seen as to how electronic commerce exerting some
considerable influence on the way freight transportation services are being
transacted. The information technology has become the key element in determining
the prices and service differentiation in transportation services. E- commerce is
transforming the commercial relationship between carriers, intermediaries, shippers
and the consignees. Most parties on the transportation chain are getting greater
internet access thus calling for the players to be more competitive.
Traditional ship agents therefore needs to diversify their activities so as to adopt or
cope with technological changes, it is thus advised that the intermediaries needs to
involve themselves in value added services and the associates logistics services like
warehousing, packaging, storage, freight forwarding etc.
66
CHAPTER 06
CONLUSION
For any country in the world that aim at achieving economic development needs to
improve transport and it’s associated logistics. Inefficient transport logistic could
lead to low level of country participation in the international trade. Many
development economists believe that, there is close correlation between transport and
economic development.
For countries like Tanzania that is having port, generally they have added advantages
in the participation to the international trade and that has also a function of
transporting transit cargo to the land locked countries. In consideration of port it
covers not only the point between sea and lands but also logistics part of it.
Logistical constrains contributes to the general increase of the prices of import and
export cargo.
Shipping agents have some significant role in the logistic chain hence they have to
provide higher services with higher quality services, reliability and above all the
focus should be on customer requirement.
The establishment of the State Company dealing exclusively with Shipping Agencies
had the purpose of introducing common ownership of the means of production, at the
same time the formation ignored the problems that could crop up leading to barriers
to trade.
Structural changes were inevitable as the crisis in the shipping industry was at its
peak. The author at this juncture wishes to congratulate the government for its
intervention for allowing private sector to participate in the Agency business, though
this decision came late, it is true to say that better late then never!
67
Myopic people do consider that privatisation is evil simply because it leads to
redundancy to some workers. Such ideas are purely not correct since the focus
should be on the way it has been aimed, designed, and implemented. The purposes
of introducing free market economy are very obvious this includes promotion of
economic efficiency, attracting foreign investment just to mention few of them.
The reforms would allow the Tanzania ship agents to cope with the global
challenges, which affects the practicability and the general functions of the ship
agents and other intermediaries.
The fast ever growing of Information and Technology (IT) especially the Internet is a
major threat to the traditional intermediaries. The ability of client to make cargo
booking, freight payment, access to ship schedule through the computer screen all
these and others limits the functions of the ship agents.
Basing on this fact the author has given various recommendations as a tool for the
intermediaries to succeed in this new working environment. Some of those
recommendations include diversification of the activities by providing value-added
services like NVOCC, packaging, warehousing, improved training, and formation of
the Shipping and Brokers Association just to mention few.
68
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Above: How the NVOCC work (Source: Lambert p.407)